Thursday, April 08, 2010

1969 and 2010: Higher Taxes, Higher Costs and Structural Monopolies

by Charles Hugh Smith

The cover story of the August 15, 1969 issue of Life magazine, 41 years old, seems ripped from today's headlines: The Dollar Squeeze.

Astute reader Ed C. was kind enough to send me a physical copy of the August 15, 1969 issue of Life magazine with the cover story, The Dollar Squeeze.

Fortunately Google books has the full edition available online: The Dollar Squeeze: high taxes and high prices make everybody feel poor (Life magazine, August 15, 1969).

Techno-geeks will be interested to see photos of young Bell Labs gurus Robert Lucky, Martin Lepselter, Kumar Patel and John Copeland featured in an AT&T advert.

Younger readers may marvel at the full-page adverts for cigarettes, while I marvel at the astonishing fact that there are no adverts for drugs/medications--my gosh, how did we survive without all these heavily advertised meds?

Back in the day, pharmaceutical companies were not allowed to advertise directly to consumers.

Here are a few snippets from the piece:

Everybody is angry about money.

We have lost faith in Federal priorities and in our own future. (highlighted by Ed C.)

The people have a villain--"those bloodsuckers in Washington."

The latest Harris poll reveals a deep, bitter national resentment over taxes and government spending, and shows how a declining dollar has eroded our goals and dreams.

Quote: "The government is run by the rich. You've never heard of a poor politician. I'd quit paying taxes tomorrow if there was someone to lead the revolt."

The article takes pains to expose the effects of higher taxes and inflation. Taking the example of a family which earned $10,000 in 1959--a respectable $74,500 in today's dollars--Life then compares the net income after taxes of that family earning $15,000 in 1969--$88,500 in today's dollars.

The actual net increase in purchasing power in that additional $5,000 of income was a meager $575. So even though the family appeared to boost its income a hefty 50% in a decade, their actual improvement in income was a mere 3.8%.

Ed C. also highlighted the taxes paid by a salesman/wage earner who earned $10,000 a year: $450 in sales tax, $265 in property taxes, $800 in Federal, state and local taxes. Ed's comment summed up our reaction from the perspective of 2010: "8% in Federal, state and local taxes combined!?"

Indeed, that looks dirt-cheap. We self-employed workers pay almost double that (15.3%) just in FICA (Social Security) and Medicare taxes--then we pay a minimum of 15% Federal and 5-10% state taxes, for a minimum tax bite of 35%.

The wage earner in 1969 made $74,500 in 2010 dollars and paid $4,700 in Federal, state and local taxes. We should be so lucky. I pay about that amount of tax on half that income.

He paid $1,565 (in 2010 dollars) in property taxes in 1969--that's 14% of our property tax bill.

I also recommend reading the article on Ian McHarg ("Man is the agent of evolutionary regression") and especially the piece on the innocent bystander getting swept up by the police and carted roughly off to a temporary Gulag for the crime of standing on a street corner in Berkeley, CA during a modest disavowal of the Status Quo. ("Nightmare for the innocent in a California jail.") Tea Party protestors, take heed. If you become threatening enough to the Status Quo, the State can set up temporary Gulags within the vast existing "drug war" Gulag quite readily. There's an institutional memory of how to do so.

The standard explanation of inflation in the time period 1966 - 1973 is the Federal government pursued both "guns" and "butter": a trillion-dollar war in Southeast Asia and trillion-dollar (in today's dollars) suite of entitlements.

Today, monetary inflation of this sort is low to non-existent but we have higher costs due to structural monopolies in half the economy.

By structural monopolies I mean institutions which have no competition and thus they can raise prices at will. These include all governments, the sickcare industry, the education industry and the petroleum complex.

The Federal government budget is $3.5 trillion. State and local governments are another $1.5 trillion, the non-State private sickcare industry is about $1.7 trillion, and the private education system and oil complex add major chunks of protected cartels which are immune to real competition (though simulacra competition is presented as the "real thing" to mask the cartel structures).

Add up these structural monopolies and you find that over half the $14 trillion U.S. economy is controlled by non-competitive cartels and their Power Elites.

Don't want to feed the oil cartel? Unless you live in such a fashion that you can bicycle where you need to go, you have no choice. Even your all-electric car is ultimately powered by King Coal which supplies about half the nation's electricity.

When there is "free money" (i.e. student loans and 3%-down FHA mortgages, Medicaid, etc.) manufactured by the central State to feed specific cartels, then competition is replaced by structural monopolies. As for competition in public education--the Status Quo is co-opting and suppressing charter schools with all its might. Don't want to pay $10,000 property taxes? Your only choice is to move.

My point is this: you don't need monetary inflation to see systemic, uncontrolled increases in costs. When half the economy is captive to the government and its chosenstructural monopolies such as sickcare, education and housing, then there is no way that deflation in assets or the non-captive sectors of the economy can offset the stupendous increases in taxes and costs imposed at will by government and its protected fiefdoms/structural monopolies.

This is yet another reason why the ever-popular "inflation-deflation" debate is bogus; the debate neatly bypasses any structural analysis of the power centers of the economy. Needless to say, the Power Elites are delighted to have everyone's focus diverted from their concentrations of power to an essentially bloodless and futile "debate" about inflation and deflation as financial phenomena rather than recognizing rising costs as the consequences of various structural monopolies imposed by the Power Elite/State partnership.

There is more on this partnership in my book Survival+ (yes, another shameless plug).

If you haven't visited the forum, here's a place to start. Click on the link below and then select "new posts." You'll get to see what other readers and contributors are discussing/sharing. is now open for aggregating our collective intelligence.

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